Friday, February 06, 2009

What To Do If Your Home Gets Foreclosed? SQUAT

That’s right, be a squatter. In your own home. Best of all — it’s completely legal in a lot of cases.

Amy Goodman writes that a lot of subprime mortgages “were made, then bundled into securities and sold and resold repeatedly…The banks foreclosing on families very often can’t locate the actual loan note that binds the homeowner to the bad loan.”

OOPS!

Ever walk out of a movie theater and then find you can’t get back in because you didn’t save your ticket stub? Ever try to take an item back to the store without producing the sales receipt? That’s the position these banks are in right now. Twist in the wind, Suckers!

Banks of course are not anxious to spread this information, and most people don’t know about it. For all practical purposes, if you have a certain legal right but you aren’t aware of it — you don’t have it.

Congresswoman Marcy Kaptur (D-Ohio) represents one of the hardest-hit regions of the country. Her solution to the foreclosure crisis is: “So I say to the American people, you be squatters in your own homes. Don’t you leave.”

She says people facing foreclosure should tell the bank “Produce the note.”

She continues: “Possession is nine-tenths of the law. Therefore, stay in your property. Get proper legal representation ... if Wall Street cannot produce the deed nor the mortgage audit trail ... you should stay in your home. It is your castle. It’s more than a piece of property. ... Most people don’t even think about getting representation, because they get a piece of paper from the bank, and they go, ‘Oh, it’s the bank,’ and they become fearful, rather than saying: ‘This is contract law. The mortgage is a contract. I am one party. There is another party. What are my legal rights under the law as a property owner?’”

For people facing foreclosure, Kaptur recommends contacting the local Legal Aid Society or bar association, or dialing (888) 995-HOPE.

Sounds good on the surface, except for one small problem. Those notes are secured by the real estate. The security document is the Deed of Trust, which is on file at the locality's courthouse, and it's public record. I'm not sure how just saying "produce the note" supercedes the recorded security, i.e., the Deed of Trust. Now, if the Deed of Trust never made it to recordation, whoohoo, then you're home free, literally.Now, in most states if not all, the Deed of Trust secures the note, but does not outline the specific terms, i.e, payment amounts, interest rate, etc. However, they do reference back to the note. I would be very interested, from the real estate law point of view, in seeing how this plays out, if at all.Of course, if you squat, the worst that will happen is the bank will send the sheriff's office to evict you. However, in a couple of localities that I have heard about recently, the local sheriffs are refusing to carry out the evictions, and go sheriffs! :)So, I have to wonder how long the squatting could go on. Technically, at least in VA, if the "squatting" goes on for something like 20 years, then the squatter is considered to "own" the property - however, there are a million loopholes for the banks to get around this.

Kaptur is one gutsy lady. Good for her. I hope a lot of people squat and make it work.

A too-little discussed feature of the subprime scandal is how and why supposedly ethical, well-known banks with a reputation to protect got involved in the first place. After all, it's similar to learning your local Walgreen's is selling uppers and downers out the back door, with corporate blessing.

Supposedly honest, ethical bankers knew from the moment they OK'd making insane subprime loans that they weren't going to hold those loans at all. They knew they were going to bundle them up and sell them off just as fast as they could. They turned a quick profit selling garbage, washed their hands of it and moved right along.

This isn't the only way this kind of thing can be done and not the last time it's ever going to happen. We need laws to deter it and deal with those involved punitively. Nice, polite white-collar criminal treatment needs to be revamped to be a lot more like gritty street-criminal treatment.

Jo: I hadn't heard of her until I saw that article. But I'm glad she's getting the word out.

Bee: I don't know the details of this, or the legal technicalities, etc. I didn't know about this whole idea until I saw the linked article. Lawyers will probably be arguing about this for years. I've also heard about those sheriffs who refuse to evict people from their homes. You go guys.

SW: You're right, no more Mr. Nice Guy for white collar criminals. If potheads and smalltime thieves can get beaten and gang-raped in prison, so can these VIP criminals.

During the Watergate scandal, one cynical person said that prison reform would be the one good thing to come out of Watergate. Didn't happen. All it did was create a whole system of Club Fed prisons for white collar criminals, and everybody else kept being sent to the dungeon.

I'm a real estate agent and I handle forclosure properties so I can put some of this in perspective.What the good Congresswoman is advocating may work for a little while in some cases but it is complicated.First some states have mortgage laws while others have a deed of trust. The difference is in the legal procedures.In all states these documents must be recorded with the registrar of deeds so the most you can hope for is a month or two delay.I think her best advice is for people to get LEGAL COUNSEL when the FIRST letter from the bank arrives. Most people don't do this, primarily because they don't have the money. And there are those people who were never responsible enough to own a home - the homes look like they have been trashed, but in reality, the owners have been living like pigs since they bought the place. After viewing enough of these places, it gets easier to tell the difference.I have been voicing concern about these loans for several years - it has never made sense to me that you could buy a house for 100% loan with a crappy credit score. Most of those homes have already hit the market. The new wave is the recently unemployed/ underemployed and that is going to be a much bigger problem. For the unemployed; how do you renegoiate a loan that they can't pay regardless - they aren't making any money! Where do they go after they have been evicted? How do you recoup your loan when you flood the market with foreclosures?We are in a unique situation which will require unique solutions.There is a trend currently being attempted in limited areas of renting back the properties to the former owners. There is usually an inspection of the property followed by a lease that calls for maintaining the property, etc.This has potential to stave off a huge meltdown. When the market and the economy stabilizes, the former owners can have the option of obtaining a mortgage based on the then current value.Of course, all this requires banks who actuaaly know what the hell they are doing and CARE enough to help save the country instead of padding their offshore accounts.

I think it's safe to say that white-collar criminals far more damage than all the rest. Which is a shame that there weren't oodles of prison sentences after Nixon, after Reagan, and now, not after Bush.

Criminals will keep on doing crime until they're stopped. This isn't hard, people.

Bee and Rockync, thanks for filling in some blanks about how this works.

The rental approach sounds sensible, at least for people who are taking decent care of their place. Empty houses degrade neighborhoods and deteriorate at an accelerated rate, making them harder to sell and further degrading the neighborhood. So, keeping people in their homes provides a benefit, even if no one is making a profit.

Of course, people who bought a home irresponsibly and proceeded to trash it, as Rockync describes, deserve no sympathy or addtional help keeping the place.

Wouldn't it be swell if we could somehow move those folks out and get money to restore the properties from the hustlers responsible for making all those bad loans?

PITS: Same here. The combination of having to be so detail-oriented and dealing with a million shades of gray -- my head would be spinning.

Lew: People like her are too few and far between. Real estate and banking interests will probably come up with a 7-figure campaign war chest to get her "voted" out of Congress.

Rockync: Thanks for all the info. Yes, I think getting legal counsel should be the first step when somebody gets a threatening letter from the bank. When people feel powerless, they are. It's too easy to fly into a panic after getting an official notice from a bank, or any large company or government agency. "Oh God, it's a notice from the bank. It says they're gonna, oh God, look at what it says!"

Chances are, getting legal advice -- early -- will make the situation less dire than it seemed at first. No wonder the Far Right has been trying to eliminate legal aid organizations since the early '90s.

That's an excellent idea about foreclosed owners being able to rent their house instead of being kicked out. Where I used to live, near the Russian River, Northern California, there were a lot of dilapidated old summer cottages that people were renting year-round. Sometimes the owner would sell the house to the renter, but the owner had to handle all the financing and take all the risks ("take the paper" is what I think they called it). The properties were usually too full of code violations that had been ignored or grandfathered in, and no bank would touch it. Your idea sounds like sort of a variation of that.

This is the kind of inventiveness that we need, from all parties. Individual parties arriving at an agreement -- and honoring it, of course. Maybe there's hope.

SW: You're right, the top priority is to keep people in their homes -- for their own benefit and for the benefit of the whole neighborhood.

Squatters...civil disobedience on a large scale would work to get our government to deal with this problem with a sensible solution. I love it.

As a former banker during college and during the biggest point of the housing bubble, I can tell you that they didn't care a bit if people got into loans they couldn't afford. If you wanted a home and didn't have money we would find a way to get you into the home. We didn't even bother verifying income with pay stubs so long as you claimed you could make the payment. Nevada (where I was from) has a huge service industry where most of the income is unclaimed tips which was impossible to verify yet we would let them "estimate". We would also encourage ARMs for people who wanted a bigger house than they could immediately afford and simply suggest they refinance in 5 years. We were threatened with termination if we didn't meet our goals for consecutive quarters, so it came down to shadier and shadier practices to get people into homes. It was an "anything it takes" mentality fostered by weekly "corporate sales meetings" jamming threats and numbers down our throats. We would end up selling the loans to small banks and just service them with no risk. Yes, all the bad things you may have heard about banks behavior, I have seen worse.

I totally understand the fact that people were still irresponsible in getting these risky loans, but when push came to shove we were better at selling and doing our jobs than they were at fighting off our pitches. Selling the American Dream is easy if you can paint the picture correctly. In most cases they got screwed and didn't see it coming. I am glad I did this for a very short time before realizing how horrible it actually was. I am still disgusted. I sincerely hope that those who are getting screwed right now fight to remain in their homes. The banks should be held accountable.

Interesting to hear from a first-hand account that all those stories are true. I saw a news item a few weeks ago describing exactly what you're talking about -- loan officers being pressured to make as many of those ARM loans as possible, with the threat of being fired if they didn't get enough of those loans arranged.

I worked for an insurance company. I was there for quite awhile, I'm ashamed to say. It's that same cutthroat gouging mentality, combined with the mindset that every claimant is just some whiny parasite who's trying to get something for nothing.

I think it's poetic that banks are now getting burned for not being able to "produce the note." This fragmentation process, or whatever you call it, where loans are sold and resold over and over, has been very lucrative for them. And it takes away accountability. They can answer most complaints with "oh, we sold that loan to so-and-so," "that's not my department, you'll have to contact this agency in Dallas," "the buck starts here," etc. And now this whole tactic has finally backfired on them.

Nice post. I like the part about produce-the-note. I live in Tampa and know one person he helped, and it actually worked. Well it did not work like some of the newspapers reporting, but they did get new terms that were very favorable and they were able to avoid foreclosure. It really varries by situation and probably the laws of your state on how far this goes. This site has all the videos they have done. Watch all the videos here:

It isnt about what is legal. It's about how far we are allowing ourselves to be pushed, stay in your houses, keep your cars, tell the credit card companies to try to collect the money from you. revolution is comming....join me

I am SQUATing at the moment… if you can call it that. The bank has not “produced the note”, but, the house was sold at a sheriff sale a few days ago. I was told that legally in Cook County, IL, the new owners must allow 60 days for us to move out before they can evict us. But, I am not blaming the bank. I have a major problem with HomEq, a servicing company that the banks use to outsource its record keeping - billing, accounting, and collecting on mortgage payments. When an individual cannot do his or her job, they should be fired… if a company cannot do the job they were contracted to do, they should be replaced by someone who can… Sure, we are not perfect, we got behind on when my husband lost his job. And by behind I mean, a month behind, and some payments were late. But, not 19 months behind as they said we were! Wouldn’t you think that REALLY being 19 months behind on a mortgage would raise some eyebrows and red flags from the bank? Of course they started foreclosure proceedings almost instantaneously and would not admit the error in their accounting. We spent our last $2000 on a loan modification lawyer, but HomEq refused to work with them or us. And in case you are wondering if I am just a disgruntled, former homeowner that refused to pay the mortgage and is now crying poor me….The answer is NO! Here are some other reviews...

Just some advice from someone who wishes we had the same advice a year ago. If your mortgage gets bought out by a bank that uses HomEq Servicing… Refinance as soon as you can. In the mortgage paperwork, you can put in a legal clause that states that your loan can not be sold to any bank working with HomEq.